4 ms·

If you own a building that could sell for $10m to the right buyer after a few months on the market or $2m if you had to fire sell it tomorrow, then that buildin

by 0xy 3y ago

If you own a building that could sell for $10m to the right buyer after a few months on the market or $2m if you had to fire sell it tomorrow, then that building is worth $10m, not $2m.

blitzar 3y ago
Given the cost is estimated to be $13bn, after the assets are wound down "to the right buyer after a few months on the market" the $229.1 billion is pure fantasy
_s 3y ago
Unless you did have a fire sale and it went for $2M - that's what it's worth at that moment in time. Sure it could be worth $10M in the future, but it isn't right now.
JumpCrisscross 3y ago
There were no fire sales of Treasuries. They’re actually just worth less. The problem is we treat HTM securities as both inviolable in value and liquid.
kgwgk 3y ago
If you own a building that it’s 100% certain to be sold for $10m in six months then that building is not worth more than $9.75m today.
CPLX 3y ago
That’s not correct. Assuming the $10MM sale is a certainty then the building is worth just slightly less than that, accounting for six months of interest at the prevailing rate. Assuming the interest rate is around 4-5% as it is now, that means the building is worth a couple hundred thousand less than $10MM. That’s the definition of “slightly less” in the exact scenario you set up. If you think a couple hundred grand doesn’t matter you are free to wire it to me at your leisure. Now make six months into six years or sixteen years and you understand the problem better.
makomk 3y ago
This isn't a liquidity problem though - the actual fair market value of the assets that they can realistically expect to get has dropped due to interest rates rising. Someone with $10 million to invest in long-duration government bonds won't pay face value for bonds that pay out $10 million at maturity plus a small amount of annual interest when the government has issued newer bonds with much higher interest payments, they'll expect a discount that accounts for the lower amount of interest paid over the term, but banks have a bunch of bonds like that that are still on their books at face value and haven't been marked to market.

by 0xy 3y ago

If you own a building that could sell for $10m to the right buyer after a few months on the market or $2m if you had to fire sell it tomorrow, then that building is worth $10m, not $2m.

blitzar 3y ago

Given the cost is estimated to be $13bn, after the assets are wound down "to the right buyer after a few months on the market" the $229.1 billion is pure fantasy

_s 3y ago

Unless you did have a fire sale and it went for $2M - that's what it's worth at that moment in time. Sure it could be worth $10M in the future, but it isn't right now.

JumpCrisscross 3y ago

There were no fire sales of Treasuries. They’re actually just worth less. The problem is we treat HTM securities as both inviolable in value and liquid.

kgwgk 3y ago

If you own a building that it’s 100% certain to be sold for $10m in six months then that building is not worth more than $9.75m today.

CPLX 3y ago

That’s not correct. Assuming the $10MM sale is a certainty then the building is worth just slightly less than that, accounting for six months of interest at the prevailing rate. Assuming the interest rate is around 4-5% as it is now, that means the building is worth a couple hundred thousand less than $10MM. That’s the definition of “slightly less” in the exact scenario you set up. If you think a couple hundred grand doesn’t matter you are free to wire it to me at your leisure. Now make six months into six years or sixteen years and you understand the problem better.

makomk 3y ago

This isn't a liquidity problem though - the actual fair market value of the assets that they can realistically expect to get has dropped due to interest rates rising. Someone with $10 million to invest in long-duration government bonds won't pay face value for bonds that pay out $10 million at maturity plus a small amount of annual interest when the government has issued newer bonds with much higher interest payments, they'll expect a discount that accounts for the lower amount of interest paid over the term, but banks have a bunch of bonds like that that are still on their books at face value and haven't been marked to market.